Overtime pay is based on more than just an employee’s base pay rate, are you properly calculating overtime?
In today’s job market employees can be hard to find. As customer orders increase while the world reopens in preparation for what we will hope will be a post-pandemic world, there are not enough employees to cover the shifts needed to meet demand.
The Wall Street Journal recently reported that there were more job openings in the U.S. this spring than before the pandemic hit in March 2020 and household income rose at a record pace of 21.1% in March. The 21.1% March surge in income was the largest monthly increase for government records tracing back to 1959. Spending also surged, the Commerce Department reported that spending was increasing 4.2%, in the steepest month-over-month increase since last summer.
As employers struggle to meet demand, many have turned to offering attendance bonuses to encourage workers to take less desirable shifts. A $50 bonus for anyone willing to work third shift. An additional $3.00 per hour for employees willing to work Saturdays. Double pay for anyone willing to pick up a 6th shift. Sound familiar?
These bonuses seem straight forward, until you start trying to calculate overtime pay. In Part II of this blog article we will go into more detail about some of the different bonuses employers are offering to incentive workers to come to work. Here, in Part I, we will first generally revisit calculating overtime in general.
Calculating Overtime
First let’s do a basic overview of calculating overtime. Most business owners are familiar with basic overtime calculation: in most states, non-exempt employees must be paid at a rate not less than 1-1/2 times the regular rate of pay for all hours worked over 40 hours in a workweek. Sounds straightforward right? Except that phrase “regular rate of pay” is trickier than it sounds.
What is a workweek or a workday?
The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed work place. “Workday”, in general, means the period between the time on any particular day when such employee commences his/her “principal activity” and the time on that day at which he/she ceases such principal activity or activities. The workday may therefore be longer than the employee’s scheduled shift, hours, tour of duty, or production line time. Work not requested but suffered or permitted to be performed is work time that must be paid for by the employer. For example, an employee may voluntarily continue to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable. The Department of Labor Fact Sheet #22 goes into more detail about making these determination.
What is included in an Employee’s Regular Rate of Pay?
To understand how to calculate an employee’s regular rate of pay you need to take into consideration all remuneration an employee received for that workweek unless the remuneration is exempt under The Fair Labor Standards Act (FLSA). Note that the U.S. Department of Labor uses the term “remuneration” and not compensation here. That comes as a surprise to many employers who typically calculate overtime based on compensation alone. The term remuneration is used because it encompasses more than just money paid out to an employee, including non-cash compensation. According to the U.S. Department of Labor Fact Sheet #23 “where non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate”.
Another confusing scenario is when an employee works different jobs at the company and is paid at a different hourly rate for each. Many employers wonder if overtime should be calculated based on the lower rate or higher rate or just an average of each? The U.S. Department of Labor has also weighed in on this situation in Fact Sheet #23 saying “where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates.”
What is NOT included in an Employee’s Regular Rate of Pay?
If the regular rate of pay includes all remuneration for employment except certain payments excluded by the Act, what then is excluded? The U.S. Department of Labor announced a Final Rule on December 12, 2019, that says the following are not included in the “regular rate of pay”:
- the cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
- payments for unused paid leave, including paid sick leave or paid time off;
- payments of certain penalties required under state and local scheduling laws;
- reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;
- certain sign-on bonuses and certain longevity bonuses;
- the cost of office coffee and snacks to employees as gifts;
- discretionary bonuses, and;
- contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
Should you have any questions about calculating overtime, the difference between discretionary and non-discretionary bonuses or you would like to schedule an initial consultation, please contact Navigant Law Group, LLC at (847)253-8800 or email us at info@navigantlaw.com.
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